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Unlike the loan modification problems facing home owners recently, this fraud scheme is targeted at home owners who entered into a loan modification agreement between 2002 and 2007. If you modified your loan between these years you might want to dig out your paperwork because you may be in for a big surprise.

This scheme to defraud begins when the loan is closed and initially involved the escrow account set up with the servicer of the loan for the payment of insurance, property taxes and mortgage protection insurance. Part of the closing costs buyers are required to bring to closing was the portion of the property taxes owed from the date of the purchase of the property through the end of the year. The seller was required to pay for the property taxes from the first of the year to the day they sold the property.

The closing agent should have collected the taxes from both the buyer and the seller and deposited them into the escrow account per the escrow instructions thus insuring that the funds were available in that account to pay property taxes at the end of the year. As you are aware, there is an additional amount added to loan payments every month which is deposited in an escrow account each month insuring that, year after year, the property taxes, property insurance and mortgage protection insurance are paid and kept current.

It appears that originators like Memorial Park Mortgage in Houston, Texas were under-funding some loans by the exact amount that the seller owed for their portion of the property taxes. This was fraudulently concealed buyers at the time by a cleaver accounting entry that transferred a credit from the seller’s side of the ledger to the buyer’s side of the ledger. Originators like Memorial Park Mortgage then instruct the closing agent to only fund the escrow account with the buyer’s portion of the property taxes. The effect of this is that the seller fulfilled their obligations in paying their portion of the property taxes. The buyer received a credit from the seller thereby transferring the tax obligation to the buyer which should have caused a closing surplus in the buyer’s favor. However, because Memorial Park Mortgage under-funded the amount they sent to the closing agent by the exact amount of the seller’s tax obligation, it appeared as if all the closing transactions balanced.

In effect, Memorial Park Mortgage stole an amount equal to the property taxes owed by the seller at closing. Further, buyers have been repaying a loan greater than the amount that you actually received.

Immediately after the loan closed the originator would sell the loan to Freddie Mac.

Sometime after January of the following year, buyers are contacted by the loan servicer and told that although the property taxes were paid from the escrow account, this payment caused a shortage in escrow. The shortage was the amount of taxes that Memorial Park Mortgage cleverly transferred as a credit from the seller to you at closing and then instructed the closing agent not to deposit to the escrow account. Many home owners who were victims of this fraud contacted their closing agent and were told that they had received a credit from the seller at closing and therefore the taxes had been their obligation. What they were not told is that, had Memorial Park Mortgage funded the full amount of the loan, the credit from the seller would have resulted in a surplus that should have been deposited in their escrow accounts.

The loan servicer would not have required an escrow account to be set up and then allowed it to be under funded. Because of this they assumed that the shortage must necessarily have been caused by some other condition such as in increase in the property value. Accordingly, your servicer required buyers to not only cover the shortfall in the escrow account but this shortfall amount was doubled to insure that the shortfall did not reoccur the following year. This amount must be paid out over 12 months thus the loan payment increased by nearly thirty (30%) percent.

Mortgage originators like Memorial Park Mortgage are in a unique position to know exactly how much buyers can afford to pay each month as well as what would likely occur if the monthly note each month increased by the shortfall they created in your escrow account at closing. After several months of paying the increased payment, many home owners fell behind on the note and began receiving foreclosure notices from Barrett Burke Wilson Castle Daffin & Frappier, LLP (“Barrett Burke”) claiming default.

At the same time home owners were contacted by Loan Servicing, a company in Dallas, Texas working with their client, Freddie Mac, in order to help you stay in your home, the result of which was an agreement to enter into a modification of the original promissory note signed at closing. Once approved for the modification, paperwork would be forwarded to Barrett Burke for buyer’s signature and buyers are required to pay the “closing costs including title insurance.”

If you originally worked with Loan Servicing from Dallas, Texas to modify your loan, a quick check of your loan modification agreement may show that the owner of the loan is listed as someone other than Freddie Mac. If it does, Barrett Burke may have worked in conspiracy with your mortgage originator and induced you to sign a Loan Modification Agreement with some other investor by fraudulently concealing the true owner of your note. This is actually a new loan.

As you can see from this copy of a Loan Modification Agreement (http://dc131.4shared.com/download/134185990/abbf7f33/LoanMod.pdf), Principal Residential Mortgage is noted as the lender. This corresponds with the Assignment of Deed of Trust in the county records filed by Memorial Park Mortgage a short time after the Loan Modification Agreement was signed. This action by Memorial Park Mortgage is an essential part of the fraud as it, along with the Loan Modification Agreement, serves to illegally attempt to change the ownership of your loan to someone other than Freddie Mac.

Many of the victims we have spoken to were unable to keep up their payments after their monthly payments increased and they were eventually foreclosed on by Principal Residential Mortgage fraudulently acting as the owner of their note.

In these examples Principal Residential never owned these notes and was only servicing it for Freddie Mac. Memorial Park Mortgage sold the original note to Freddie Mac, the ownership of which was transferred to Freddie Mac under an irrevocable power of attorney (http://dc131.4shared.com/download/134185966/c544c6c9/PowerAsmtFreddie.pdf) executed prior to closing that forever transferred the rights to sell the loan from Memorial Park Mortgage.

The original shortfall in the escrow was caused by Memorial Park Mortgage’s theft from the funds they owed to you due at closing. In addition to being caused to pay back the money that Memorial Park Mortgage stole, these home owners have been paying notes based on a loan amount that they never received because of Memorial Park Mortgage under-funding the loan at closing.

If your loan modification agreement exhibits these same elements, you should contact an attorney.